What percentage of total assets is held in cash. A healthy cash position buffers against downturns. Above 10% is a reasonable baseline. Very high ratios may suggest management lacks good reinvestment opportunities.
Formula
Description
Shows what percentage of total assets is held in cash. A healthy cash position provides a buffer against unexpected downturns and gives management flexibility to pursue opportunities. However, too much cash may indicate poor capital allocation.
Interpretation
Above 0.1 (10%) is a reasonable baseline. Very high ratios (above 30%) in non-financial companies may suggest management lacks good reinvestment opportunities. Compare to peers and consider the company's capital allocation track record.
Related Quality Indicators
The percentage of revenue left after paying all operating expenses but before interest and taxes. This shows how efficiently the core business runs. Above 15% is generally strong. Consistently expanding margins signal improving business quality.
The percentage of every revenue dollar that becomes bottom-line profit after all expenses. Above 10% is strong for most industries. Persistently high net margins often indicate a company has a competitive moat protecting its business.
Profitability before the effects of debt, taxes, and depreciation. Useful for comparing companies across different tax jurisdictions and capital structures. Above 20% is generally strong. Often used in merger and acquisition analysis.
The percentage of revenue that converts to free cash flow. This is arguably the most honest profitability metric because free cash flow is difficult to manipulate. Above 10% is strong. Capital-light businesses like software companies tend to have the highest FCF margins.
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